Passion investing won’t provide adequate portfolio diversification

Philip Faure, Head of Cape Regions at Standard Bank Wealth and Investment.

Africa’s wealthy need to plan ahead to ensure their ‘passion investments’ stay in touch with their overall wealth ambitions and goals, says Philip Faure, Head of Cape Regions at Standard Bank Wealth and Investment.

Exposure to alternative investments like art, wine and cars only changed 9% in the past year for Africa’s wealthy compared with a global average of 29%, according to the 2018 Wealth Report published by Knight Frank, Standard Bank Wealth and Investment’s global property consulting partner.

Furthermore, a total of 23% of high net worth African clients were found to collect an “investment of passion” like art, wine, jewellery, watches or classic cars – while the global average is 37% and as much as 47% in Russia and 44% in the Middle East.

“There are many reasons to buy an investment of passion, but the main reason is the joy of ownership. However, for the high net worth client in Africa you will find that capital appreciation is also a very important consideration and you can expect these types of investments to increase in popularity in the future as wealth levels rise,” adds Faure.

While Africa only saw an increase of 7% in those with US$5m, this is expected to increase by as much as 33% between 2017 and 2022.

Notably, 76% of wealth advisers in Africa says their clients’ wealth increased in 2017 and will do so again in 2018.  South Africa alone is forecast to see a 20% uplift in its ultra-wealthy population over the next five years following a 14% rise in 2017.

“However, only 47% of wealthy individuals in Africa have an adequate succession plan in place. This is a concern with complexity and risks,” says Faure.

It is imperative that investing in your favourite wine or car therefore forms part of an over-arching goals-based investment plan – to avoid any nasty surprises down the line.

“Passion investing is not going to provide adequate portfolio diversification, for instance, and so any desire to buy that favourite classic car or luxury watch must still form part of an overall, long-term wealth management plan, which includes building wealth, preserving wealth, and maintaining lifestyle and legacy wealth.”

The 2018 Knight Frank Attitudes Survey is based on responses from over 500 of the world’s leading private bankers and wealth advisers who between them represent around 50,000 wealthy individuals with a combined wealth of more than US$3 trillion.

It found that one of the leading concerns for high-net worth individuals is that their wealth may be fritted away within just a few generations.

“The only way to prevent this – and to still be able to enjoy the things you have a passion for – is to set up the most appropriate structures with trusted experts to maximise outcomes and achieve goals,” adds Faure.

“The focus is therefore on finding out what matters most to clients, by understanding the dreams, goals and ambitions they have for themselves and their families.

“We’ll then craft a plan that helps meet their needs and ensures they are living their desired lifestyle, safe in the knowledge that the generational needs of their families are taken care of.”

As a full service financial services organisation, Standard Bank is able to provide solutions across a set of primarily non-banking products and services that complement Standard Bank Group’s traditional banking products and corporate and business banking solutions.

“We have restructured our client tiers so as to more appropriately and intimately understand their needs and in doing so, we have diversified our client base and are able to provide a more personalised lifelong banking and wealth management proposition.

“Our Wealth Advisory business model has been enhanced by the adaptation of our delivery method (a single point of contact) and our value proposition (the Wealth Quotient) which allows for the delivery of personalised, holistic services tailor-made across building wealth, lifestyle wealth, legacy wealth, and preserving wealth.”

Families in Africa have become more global and choose to structure their lifestyles and ambitions accordingly.

“By being disciplined, planning investments properly and regularly revising and reviewing progress you can leave a lasting legacy while still having fun doing and investing in the things you love the most,” Faure concludes.

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